Why Whole Foods Market, Inc. Stock Got Trashed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Whole Foods Market  (NASDAQ: WFM  ) were looking rotten to investors today, falling as much as 22% after a disappointing second-quarter earnings report. 

So what: The organic grocer missed expectations on all three counts as increased competition seems to be taking a bite out of Whole Foods' growth. Revenue in the quarter increased 9.7% to $3.32 billion, a bit short of estimates at $3.34 billion, as same-store sales grew 4.5%, a respectable clip, but slower than expected. Profits were flat as food costs increased, dropping its operating margin 50 basis points to 7%. On a per-share basis, the company made $0.38, missing estimates of $0.41. Management also dialed back its own guidance, now forecasting 10.5%-11% revenue growth, and earnings per share of $1.52-$1.56, down from $1.58-$1.65. Wall Street had projected EPS of $1.61 for the year.

Now what: This morning, several analysts cut their ratings on the supermarket chain as Wall Street appears to have lost faith in the stock. Even the Whole Foods earnings call was brutal as analysts lambasted management for not having more of a plan for countering rising competition other than lowering prices. Co-CEO John Mackey admitted that "Competition is more intense now than we've possibly ever experienced," but the company is still growing, both organically and through new stores, and today's drop seems mostly valuation-based rather than a reflection of the company's overall health. The rest of the year won't be easy for Whole Foods, but shares finally look reasonably priced after today's fall.

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Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On May 07, 2014, at 2:59 PM, kalevine wrote:

    shares FINALLY look reasonably priced? Then why was the stock being touted here at $65?????

  • Report this Comment On May 07, 2014, at 3:46 PM, somethingnew wrote:

    This is the author's opinion that the shares finally look reasonably priced, not the Motely Fool as a whole. It's two completely separate opinions. Personally, I think they still look expensive.

  • Report this Comment On May 07, 2014, at 4:14 PM, stevenrstark wrote:

    I bought today at $38.82 but I do not think the price is super reasonable based on DCF analysis.

  • Report this Comment On May 07, 2014, at 6:12 PM, Elwyn wrote:

    Good question, kalevine. Those of us who bought WFM on an earlier MF recommendation are really screwed! Time to stop believing MF hype, I think.

  • Report this Comment On May 08, 2014, at 1:18 AM, Kakabeka wrote:

    John McKay is an ignoramus.

    He represents all that is evil AND wrong with capitalism.

    I refuse to support a company that is led

    By someone who is so out of touch with reality.

    (he definitely makes a great role model for the evil republicans)

    http://www.huffingtonpost.com/2013/01/16/whole-foods-ceo-oba...

  • Report this Comment On May 08, 2014, at 2:51 PM, Thror wrote:

    I have no idea what you're talking about. Are you not shopping at Whole Foods? Are you not investing in WFM? What does "support" mean to you?

    And if you're referring to his op-ed piece on Obamacare, it's an opinion shared by around half of the country. Right or wrong, by definition it's hardly "out of touch with reality". You apparently disagree with it, and decided to use charged words like "ignoramus" and "evil" (twice!) to make your point.

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